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MONEY: The dollar as the world’s reserve currency

Bernanke assured his listeners that the FED has lots of ways to deal with this threat — painless, politically acceptable ways, he implied.

We have a number of tools we can use to reduce bank reserves or increase short-term interest rates when that becomes necessary. First, many of our lending programs extend credit primarily on a short-term basis and thus could be wound down relatively quickly. In addition, since the lending rates in these programs are typically set above the rates that prevail in normal market conditions, borrower demand for these facilities should wane as conditions improve.

Translation: “The money we have created to bail out the financial system will return to the FED and be mopped up. It will not be lent out again.” The word “many” means “we aren’t saying how much, and we will not tell you if you ask.”

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They have no tools. Only the ability to pull the wool over the sheep’s eyes using their own wool.

I don’t understand: (1) Why the Chinese will hold more dollars? (2) Who’s going to buy Obama’s trillion dollar deficits? (3) What’s going to become of those on fixed income when inflation takes off? (4) What’s going to happen to the American economy when foreigners what to get paid with real money for the stuff they are sending us?